Online fashion giant Asos has warned of sales declines of up to 15% this financial year before it returns to growth levels in 2025, as a turnaround plan to shift older stock progresses.
In an update that sent shares in the company- popular with shoppers in their twenties- down more than 11%, or 44.25p to 351.15p, the London-headquartered firm also pointed to several challenges that dented sales in the year to September 3.
Like digital rivals it saw booming demand during the pandemic when high street stores were closed. But this year trading was hit by “high inflation and weak sentiment” in the UK, particularly from younger customers, and soggy weather hurting Summer clothing sales.
Total revenue was £3.5 billion, down from £3.9 billion, and sales in the UK dropped 13%. Pre-tax losses widened to £296.7 million from a £31.9 million loss.
Chief executive José Antonio Ramos Calamonte, who has led the group since June 2022 and last year launched a plan aimed at reducing stock, increasing profit per order and refinancing the balance sheet, today pointed to more sales pain ahead.
There has already been higher levels of discounting to reduce stock levels by 30%, and the company said that “final cleansing of stock over FY24 will remain a drag on sales growth and profitability through the year”.
Asos added that it expects sales to decline between 5% and 15% in the year to September 2024.
In the following 12 months it anticipates delivering revenue growth and returning profit margins to around pre-Covid levels. The firm said this financial year “is about taking the necessary action to get us to that path”.
Looking ahead Ramos Calamonte wants to focus on having fewer but more relevant lines that are more visible as older ranges go, investing £30 million on marketing, and reducing costs.
He said: "FY23 was a year of good progress for Asos in a very challenging environment. Encouragingly, stock that was brought in under our new commercial model over the summer months has performed strongly and this gives us the confidence to accelerate the rollout of our new processes.”
The company, which counts Sports Direct owner Frasers Group as one of its largest shareholders, also said it has started a process to mothball its second warehouse in Lichfield. As stock levels reduce Ramos Calamonte said: “We don’t need such a big logistics footprint.”
FY23 was a year of good progress for Asos in a very challenging environment
Charlie Huggins, manager of the quality shares portfolio at Wealth Club, said: "The past year has been another annus horribilis, but then again it was always going to be. You cannot perform major surgery on a broken business without taking considerable pain.”
Julie Palmer, partner at Begbies Traynor, said: “Management emphasise that their change agenda provides strong foundations for a shift ‘Back to fashion’, but it’s going to be a tough road ahead as inflation eats up more disposable incomes and customers spend less.”
Meanwhile Ramos Calamonte would not be drawn on reports last month that Asos is exploring a sale of Topshop less than three years after buying the jewel in the crown of the Arcadia retail business.
